The measured book-tax gap is often used as a surrogate for one of the behaviors that
influences the gap-earnings management or tax sheltering-without adjusting for the effect of
other influences-GAAP changes, tax law changes, and macroeconomic conditions. This
paper provides evidence on the quality of the unadjusted book-tax income gap as a proxy
for earnings management or tax sheltering by adjusting for the three measurable factors:
GAAP changes, macroeconomic conditions, and earnings management. I find that changes …